Star comment: Rate rise is just the beginning

After a sustained period in which interest rates have hit record lows, it is a potentially painful reminder that when it comes to finances, what goes down can also go up.

The rock-bottom interest rates which Britain has enjoyed for so long that some folk do not know anything different have been a ticking time bomb. People have been used to them and have enjoyed the advantages of cheap credit to buy things which they might otherwise have thought twice about.

The rise in the cost of borrowing will hurt most those who are borrowing most, which will generally mean householders paying out monthly on their mortgage. They might typically see an extra £10 to £20 a month going out, although it all depends on the size of the mortgage, and if they are on a fixed rate they will see no difference. No difference, that is, until the fixed rate deal ends, when they may beat which point they are in for a shock.

Objectively, the increase by the Bank of England of the base interest rate is very modest, at just a quarter of one per cent, but it is the context which makes the move interesting, and will mean all eyes will be watching to see what difference it makes.

Will consumers curb their spending? Will it help bring inflation under control? Not that inflation is out of control, but it is higher than pay rises, which means living standards are falling.

The expectation seems to be that this is not a one-off rise, but the start of a process in which the Bank of England will make small, incremental interest rate rises.

Older folk who can remember the 1970s, 1980s, and early 1990s will wonder what the fuss is about. Back then an interest rate rise of a fraction of one per cent would have been considered laughable. Inflation rates in double figures and interest rates in double figures were not unusual for those times. Compared to then, we have been living through an age of remarkable stability.

The one piece of cheer from the news comes for savers, many of whom are older people, whose nest-eggs have been attracting paltry returns. They will now receive not quite so paltry returns. Nobody is going to get carried away.

In modern Britain, awash with credit, the rate rise means people will have to adjust. That is going to be a challenge which is as much psychological as it is financial.